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Extension Notice Adequate, Therefore, Abuse of Discretion...

Attached hereto is a case out of the Southern District of New York, Hafford v. Aetna Life Insurance Company. The case is before the court on the parties’ objections to the Magistrate Judge’s Recommendation and Report. In this case, plaintiff sought long term disability benefits under an ERISA governed plan. During the appeal, defendant advised plaintiff that it was going to schedule a FCE, however, it could not locate a physician to perform the FCE. Therefore, defendant advised plaintiff of the need for a 45 day extension in order to have his file reviewed by an orthopaedic surgeon. The Magistrate determined that the de novo standard of review applied because defendant’s request for an extension was inadequate. Defendant argued to the district court that the notice complied with the applicable regulations and that the abuse of discretion applied. The court agreed:

The issue in this case is whether, consistent with Halo, Aetna followed the letter of
Subsection 503-1(i)(1)(i), which permits a 45-day extension of the appeal process only if the plan administrator “determines” that there are “special circumstances” and “indicate[s]” the same in writing to the claimant. There is limited authority addressing what constitutes “special circumstances.”1 Like the Magistrate Judge, the Court finds Judge Nathan’s opinion in Salisbury to be instructive. In Salisbury, the only special circumstance identified by the plan administrator was the need for further physician and vocational review. 238 F. Supp. 3d at 450. Judge Nathan explained that a need for further “physician and vocational review” does not qualify as a “special circumstance” because review by occupational experts and doctors is the sine qua non of claims review: “To find that [the plan administrator’s] justification for seeking an extension in this case constituted a ‘special circumstance’ would mean that virtually any request for an extension would be permissible, an outcome the Department of Labor has expressly rejected.” Id. For support, Judge Nathan relied on the Department of Labor’s preamble to Subsection 503- 1(i)(1)(i), which states that “special circumstances” refers to “reasons beyond the control of the plan” and does not encompass ordinary work challenges like “cyclical or seasonal fluctuations in claims volume.”2 65 Fed. Reg. at 70,250.

The facts surrounding Aetna’s determination to take an extension and the notice it provided to Hafford distinguish this case from Salisbury. As Aetna explained in its March 5 Letter, Aetna had tried over the course of several weeks to set up a second FCE so that it could fully evaluate Hafford’s claim, but it was unsuccessful because Hafford had moved to a remote area in northern Maine3 where there were few facilities capable of performing an FCE. A.R. 259. The fact that Hafford had moved to a rural area with limited medical facilities and that restrictions on his activity made it difficult to perform a complete FCE were not circumstances within Aetna’s control. Moreover, that a second FCE was necessary to process Hafford’s appeal was itself a result of circumstances beyond Aetna’s control and outside the ordinary course of business in processing an appeal. Although Hafford’s claim was denied in October 2013,Hafford did not appeal for more than a year, eventually filing in January 2015, approximately eight months after the deadline and more than a year after the denial. A.R. 155, 323. Because of the delay, Hafford’s records were stale and required updating.4 Unlike in Salisbury, Aetna required more time because of issues that are not a part of an ordinary appeal and that were not caused by Aetna: Hafford lived in a remote area that made scheduling a second FCE difficult, his doctors had restricted his activity making an FCE difficult to administer, and the need for a second FCE resulted directly from the fact that Hafford filed the appeal more than a year after Aetna denied his claim.

. . .

Read in the context of the chain of Aetna’s correspondence with Hafford, the Court finds that Aetna adequately “indicated” the special circumstances requiring a 45-day extension. The March 5 Letter detailed the difficulties in scheduling an FCE near Hafford’s home and explained that, as a result, Hafford’s file would be sent to an independent reviewing doctor. A.R. 157. One week later, Aetna informed Hafford that an extension was necessary because his file had been “sent [to] an independent doctor who specialize[s] in Orthopedic Surgery,” A.R. 158; in other words, Aetna needed more time because of the exact circumstances Hafford had been informed of the week prior. From Hafford’s vantage point, the “special circumstances” had to have been clear. While the Magistrate Judge read the March 11 Letter as a standalone document, divorced from the chain of correspondence that preceded it, the regulations do not require such an approach, and this Court declines to take such an approach.

The Court’s conclusion is supported by the Department of Labor’s explanation of the notice requirement and a comparison to parallel notice provisions in the same regulations.6 According to the Department of Labor, the notice requirement is necessary to “keep the claimant well informed as to the issues that are retarding decisionmaking and any additional information the claimant should provide.” 65 Fed. Reg. at 70,249. That is consistent with Second Circuit case law interpreting other notice provisions of Subsection 503-1, which, the Circuit has explained are designed to foster a meaningful dialogue between the plan administrator and the member. Juliano v. Health Maint. Org. of N.J., Inc., 221 F.3d 279, 288 (2d Cir. 2000). As explained infra it is clear that purpose was satisfied here: Hafford was well-informed of the reasons for the delay in processing his appeal, and Aetna had a robust dialogue with Hafford. In contrast to Subsection 503-1(i)(1), the regulations are explicit when the Department of Labor intends to require a detailed explanation of the plan administrator’s reasoning. For example, Subsection 503-1(f)(3) provides that a plan administrator’s notice that more time is necessary to make an initial benefits determination must “specifically explain the standards on which entitlement to a benefit is based, the unresolved issues that prevent a decision on the claim, and the additional information needed to resolve those issues . . . .” 29 C.F.R. § 2560.503-1(f)(3) (emphasis added). And in Subsection 503-1(j), the Department specified that notices of benefit determinations on appeal must include, “in a manner calculated to be understood by the claimant,” among other things, the “specific reason or reasons for the adverse determination” and “reference to the specific plan provisions on which the determination is based.” Id. at § 2560.503-1(j)(1)-(2). The detailed notice requirements in Subsections 503- 1(f)(3) and 503-1(j) are not surprising because notice under these subsections potentially concerns the merits of the individual’s claim for benefits, and, in the case of Subsection 503- 1(j)(1), may be a basis for further review. By contrast, notice under Subsection 503-1(1)(i)(1) appears to serve the more limited purpose of keeping the claimant updated on the progress of his claim.

Even assuming that Aetna’s notice to Hafford did not adequately “indicate” the special circumstances, the Court would find that the error was “inadvertent and harmless.” See Halo, 819 F.3d at 57-58. Relying on Salisbury, the Magistrate Judge concluded that Aetna’s failure was not inadvertent because “Aetna knowingly sought an extension without providing Hafford legally adequate notification of ‘special circumstances’ justifying such an extension.” R&R at 22. The Magistrate Judge’s reasoning elides an important distinction between Salisbury and this case. In Salisbury, the plan administrator’s “special circumstance” was not special and it did not justify an extension. 238 F. Supp. 3d at 449-50. The Court agrees that the decision to take an extension is, by definition, not “inadvertent.” By contrast, the shortcoming here is, at worst, a failure to include in the March 11 Letter details (that had been provided in the February 9 and March 5 Letters) “indicating” the special circumstances. Failing to consolidate all of the required detail into one letter to Hafford is akin to the examples of inadvertence identified by the Second Circuit in Halo. See Halo, 819 F.3d at 57 (including as examples of an inadvertence sending a response to an urgent claim within 73 hours when the regulation requires the plan to do so in 72 hours or sending a notice within 16 days of receipt of a claim, when the regulation requires the plan administrator to do so within 15 days). As in the examples identified by the Second Circuit, Aetna’s potential error relates to a procedural issue, rather than the merits of the plan administrator’s conduct. Moreover, as the Magistrate Judge concluded, the error was harmless in this case. See R&R at 21.

In sum, the Court holds that Aetna complied with the requirements of Subsection 503- 1(i)(1)(i) in determining that there were “special circumstances” necessitating a 45-day extension of the time to decide Hafford’s appeal and provided Hafford with adequate notice “indicating” those circumstances. Accordingly, the arbitrary and capricious standard of review applies to Aetna’s denial of Hafford’s claim.

The court ultimately finds that defendant did not abuse its discretion in denying plaintiff’s claim.